Friday, June 25, 2010

"New Look General Electric Aims to Double its China Business by the Decade's End" (GE)

From Money Morning (Australia):

General Electric Co. (GE) expects its business in China to double to $10 billion a year by 2010, as the U.S. industrial giant aims to overcome a sputtering U.S. economy by ramping up its emerging-markets focus.
”We’ve seen great growth in China,” GE Chief Executive Officer
Jeffrey R. Immelt told journalists at a recent press conference in Beijing. “The whole focus on water and the environment – well, that’s going to offer, we think, big opportunities for us as time goes on.”
At a time when the U.S. economy has been hamstrung by a severe credit crisis, a burst housing bubble, and energy and commodity prices that remain high in spite of recent declines, the Fairfield, Conn.-based conglomerate expects China to boost sales of the company’s clean-energy technology by 15% to 20% a year, Immelt says. GE should also benefit from heavy spending on other types of infrastructure in China’s fast-growing urban centers.

The growth initiatives are needed. Back in April, GE cut its financial forecast for the year ahead after blaming the U.S. credit crisis for disappointing first-quarter results. Immelt said that the company’s massive GE Capital financial-services unit – which provides 45% of the firm’s overall earnings – would be down as much as 10% this year.
For the entire year, GE has projected overall profit growth of between zero and 5% – hardly the double-digit advance in annual earnings that was once a GE hallmark. Immelt has promised to resurrect that consistency.
“It impacts us, but I think we’ve kind of managed our way through it pretty well,” Immelt told The Associated Press. “We haven’t had any big write-offs.”

GE isn’t just America’s biggest industrial company; it’s also the prototypical “Global Titan,” a role that it actually pioneered. Under former GE CEO John F. “Jack” Welch, General Electric made lots of little bets in different industry sectors and in different geographic markets throughout the world. None of the bets were big enough to bankrupt the company – indeed, some of them were as small as $10 million – but some had the potential to pay off big, or at least to help cement relationships that would lead to business deals in related product areas, or in related markets.
At the same time, GE maintained a strict corporate credo: It would be No. 1 or No. 2 in every business it was in. In a case where that wasn’t true, the business unit would either be fixed until it was – or the operation would be sold, spun off or shut down.

Under Welch, the formula worked – superbly. During his two decades at the helm, Welch transformed GE from a $13 billion (in market value) producer of light bulbs and home appliances into a corporate heavyweight with a market value of half a trillion dollars. Welch shed billions of dollars worth of businesses, and assembled a new lineup – even guiding the $6.4 billion buyout of RCA, which brought GE the NBC television network.
GE soared to top global positions in aircraft engines, lighting, plastics, power generation, railroad locomotives, consumer electronics, home appliances, consumer and commercial financial services, broadcast TV, water treatment and medical imaging.

And that wasn’t just in such developed markets as the United States and Europe. Welch realized early on that China would be a key to GE’s long-term health, and made many of those small bets in such areas as medical imaging and water-treatment – not to mention the big bets GE made there in power-generation, where it was already a big player.

Immelt – Welch’s handpicked successor – has struggled to find the same magic since his mentor retired in 2001. Under Immelt, unfortunately, growth has slowed as GE wrestled with the credit crisis, the U.S. economy’s slowdown, and changes to some of its businesses. The GE capital unit was hit hard, and the home-appliance business has also felt the squeeze. Indeed, despite a century of ownership, GE is now working to divest the appliance unit.

In a particularly embarrassing moment, when GE missed its earnings target back in April – just weeks after Immelt had vowed to “step on the gas” to restore growth – Welch publicly slammed his protégé during an interview on CNBC, a popular cable-TV channel that is actually owned by GE.

“I’d be shocked beyond belief, and I’d get a gun out and shoot him if he doesn’t make what he promised now,” Welch said. “Just deliver the earnings. Tell them you’re going to grow 12% and deliver 12%.”
Among the many moves Immelt has made, one particular decision substantially improves GE’s potential for long-term success: He opted to create an overall corporate focus on global infrastructure needs.
That’s key for several reasons. It enables GE to focus on a market – infrastructure – where there will be trillions of dollars worth of projects undertaken worldwide over the next few decades.
And that focus directly positions the company to capitalize on China’s explosive growth.

The GE-China Connection

In a market such as China, where even many basic human needs aren’t yet being met, infrastructure improvements figure to be first-focus initiatives for the central government. And that will benefit GE, Immelt has said.

For instance, water and power are two basic societal needs. Once those capabilities are available, basic development can begin. But development can’t happen without transportation of products and people. That creates demand for rail service. And once folks start to populate a region, all sorts of new jobs will be created, generating income and savings that consumers can spend on household appliances, on improved healthcare, on consumer electronics – and even on financial services, so that consumers will know how to save and invest the money left over from their newfound ability to spend.

This vibrant new economy will facilitate travel to other areas for the first time ever – but it will also attract new foreign investors and first-time foreign workers. Both the tourists and the financiers will require the same service – airplane travel.

As airline travel in Asia expands, the demand for commercial jets will grow in lockstep. And that will stoke the need for aircraft engines. Indeed, The Boeing Co. (BA) has estimated that China’s development will create demand for $340 billion worth of new jetliners during the next two decades.
This infrastructure-centric strategy sounds simple – and it is. But GE has products or services that meet all those needs – and many others, as well.

Immelt said that a corporate reorganization announced in July was aimed at simplifying GE’s structure and focusing on its finance and infrastructure businesses.
“It’s another natural evolution for the company,” he told journalists. “It’s another way to simplify the company and run it better.”

That’s why GE has long viewed China as such a key long-term market.
On Aug. 25, GE announced it was starting to move into its new China headquarters, a massive office campus situated in the East Coast city of Shanghai. Located in that city’s Zhangjiang Hi-Tech Park, GE’s China Technology Park complex of offices is an expansion of its former China research center. It covers more than 650,000 square feet and – when completed – will house more than 3,000 employees from GE’s China business groups....MUCH MORE